As the Kurdistan Regional Government (KRG) signed 5 new petroleum contracts and announced ongoing negotiations with foreign firms over 24 new oil blocks, the rather customary rhetoric by Iraqi Oil Minister, Hussein Shahristani, took a new twist by warning international companies that they would blacklisted by Iraq and even prevented from exporting oil. Ironically, in a bitter war of words, the Kurds claimed that it was Baghdad that was ‘neither legal nor responsible’.
Arguably, oil is the blessing and curse that has plagued modern day Iraq, from its artificial boundaries based on the discovery of oil to the modern day scramble for control in post-liberated Iraq.
It is clear to see why one of the Bush administration’s fundamental goals has been national unity but more specifically the division of the national resources in a way that brings bitterly-divided factions back from the brink of civil-war.
Typical of the new ‘democratic’ Iraq, political progress was compromised with all-frequent vague agreements and the haling of achievements such as the Iraqi constitution when clearly most of the issues were swept under the political rug.
Even today, despite several short-lived announcements of agreements and hundreds of hours of negotiations there is no official hydro-carbon law in Iraq and no clearer end-sight into the formation of a workable partnership amongst the Iraqi ethnic mosaic.
With the KRG working tirelessly to live up to the billing as ‘the other Iraq’ and the only oasis of stability in a shattered country, they pushed ahead with their own oil law in August and have since approved a remarkable 15 exploration and production sharing contracts (PSC).
As the Kurds have pressed on with their own development, the threats and accusations of illegal dealings from Baghdad have been all too common.
The signing of the latest five contracts with TNK- BP, Korea National Oil Corp (KNOC), Hillwood, Sterling Energy and Aspect Energy, were historical as well as a political statement authorising the legitimacy, prominence and stability of KRG.
In reality, the fuel for this debate has been the virtual independence of the KRG. Perhaps the only remaining noose that the central government has on the north is the provision of oil. A determined drive towards self-sufficiency by building new power stations, new oil refineries and even talk of a new oil pipeline has only stirred nationalist blood in the Baghdad administration to boiling point.
Once the ties of oil have also been severed, then the Kurds will be effectively independent from Baghdad. Although, officially all resources are to be shared with the KRG getting 17% of all revenues, the long-term strategic and political implications are all too vital.
Defending the so-called ‘defiance’, KRG Prime Minister stated that 85% of revenues from these agreements will go to Iraq and that all exploration activities are for the good of the greater Iraqi population. There are now 20 international companies working in the north and working according to the Kurds within ‘democratic, federal, and free market principles mandated by the Iraq Constitution’.
Clearly most of the land in the KRG is not explored and provides remarkable returns for would-be investors.
In spite of Shahristani’s warning of ‘consequences’, evidently the companies who have flocked to win contracts were already aware of the ramifications and decided the risk was worth taking. Most major oil producers were waiting for rest of Iraq, with the vast majority of oil resources to become stabilised, however, the wait is over 4 years and counting, whilst Kurdistan is ready to welcome them with open arms.
Long-term the Iraqi government seemingly views the KRG as a competitor and not a partner. Once the contentious issues of oil-rich Kirkuk is resolved and probably annexed to the KRG, this means that effectively Kurdistan would ‘own’ a sizable proportion of Iraq’s oil reserves.
One can begin to see the real Baghdad fear of a literal Kurdish break-away and Turkish alarm of the Kurds becoming a huge economical power house. This would leave the rest of Iraq to be fought between Sunni’s, with potential large swathes of barren land and with the Shiites retaining control over the rest of Iraq’s precious reserves.
Equal distribution of natural resources is one thing, but in Iraq with deep-mistrust and an artificial social patchwork, actual control of the oil-rich lands is everything.